A survey by the Pew Charitable Trusts this year revealed that nearly half of Americans don’t feel financially secure. One-third of American families have no savings, 57% said they’re not prepared for a financial emergency, and 55% of families barely break even with their finances every month or actually spend more than they earn.
These are pretty dire circumstances for American families. Have we not learned our lesson from the 2008 economic crisis?
When my husband and I were first married, we were $45,000 in debt, my husband was making minimum wage, and we were spending more than we earned every month. We just couldn’t make ends meet.
After several months in the red, we decided we needed to take drastic measures to get on the right financial track and start creating the life we wanted to live.
Five years later, we’ve paid off our debt, earn more than double what we were making, and managed to save up for a down payment and purchase our first home in one of the most expensive housing markets in the country.
Here are the money lessons we followed, and five ways you can ensure your own financial security.
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Create a monthly budget and track every penny that comes in and out of your household. It’s too easy to spend $5 here and $10 there and not notice the impact these small purchases are making on your total monthly budget.
It may take a lot of trial and error to figure out how much money you should allocate to every category in your budget, but you’ll eventually get there.
Save Before You Spend
Too many people try to save by seeing if they have any money left over at the end of the month to dump into savings. This is the absolutely wrong approach in order to save money.
Every month, my husband and I deposit money into our savings accounts before we do anything else, including paying our mortgage. We also keep our savings accounts in an entirely separate bank from our checking account. Consider it the “out of sight, out of mind” rule.
By putting money into savings first, this ensures that we are forced to live on less and actually follow through with our financial goals.
Live on Less Than You Earn
If you’re spending every penny you earn, you’re doing it wrong. If you’re relying on your credit card to get through the month, you’re doing it wrong.
After several months of doing these exact two things, my husband and I decided to make some drastic changes. We downsized from a one-bedroom apartment to a guesthouse studio and reduced our living expenses by 1/3. Even now, we live on about 70% of what we actually earn. It didn’t happen overnight, but everyone has to start somewhere.
Living on less than you earn gives you the greatest amount of financial freedom.
Don’t settle on your annual salary and think that you have to live within that financial restriction.
When we got serious about paying off our debt and taking control of our finances, we started looking at other ways to earn money in addition to our day jobs. After trying several odd jobs during our free time, we both settled on passion projects that earn us money on the side. For me, that includes freelancing, for my husband, that means teaching.
By taking initiative, we’ve managed to increase our income outside of our day jobs and diversify our income.
Ignoring Facebook is the modern day-take on not keeping up with the Joneses. With social media constantly reminding us who took a luxurious vacation or who’s driving the latest fancy car, it can be very hard to feel like your lifestyle just doesn’t measure up.
Ignore how everyone else is living, and focus on creating the financially secure lifestyle you want to be living.